(Hartford Business Journal) Sen. Linares’ Bill Would Help Create “IRA for Manufacturers”

May 14, 2013

Article as it appeared in the Hartford Business Journal
Manufacturers seek break on taxes to spur investment

Connecticut manufacturers are pushing for state and federal tax breaks so they can invest more of their earnings into better equipment, jobs, and expansions.

The state industry, led by the New Haven Manufacturer’s Association, wants U.S. Congress to pass legislation creating Manufacturing Reinvestment Accounts and Connecticut to sweeten its MRA law so more businesses will participate.

“There is a manufacturing renaissance going on, and this is something that would help that,” said Jamison Scott, vice president of Woodbridge manufacturer Air Handling Systems and past NHMA president. “There is great economics going out of this.”
Both the federal legislation and the state law allow manufacturers to set aside a portion of their revenues into an MRA to withdrawal at a later date. As long as those funds are used for a specific purpose — jobs, equipment, expansion — the money is taxed at a lower rate.

The federal proposal taxes the MRA funds at 15 percent instead of 35 percent, and the state reduces its rate to 3 percent from 6 percent.

This relatively small state tax break makes it difficult for manufacturers to participate, Scott said. Because of the extra expenditures involved in creating an MRA — such as hiring an accountant — firms are wary of the startup costs.

“There is not a big incentive to take advantage on the state level,” Scott said. “For the 3 percent, it is not really worth it yet.”

Since the law went into effect on Jan. 1, 2012, only one Connecticut manufacturer has created an MRA.

“We would love to see the program much more utilized,” said Catherine Smith, commissioner of the state Department of Economic and Community Development.

During this year’s Connecticut legislative session, a bill was proposed to decrease the MRA tax rate to 0 percent, but the measure never gained traction.

“If we are serious about creating jobs, this should be considered,” said State Sen. Art Linares (R-Westbrook), who introduced the MRA bill.

Because the bill was seen as having a negative fiscal impact on the state budget during a financial crisis, it is unlikely the idea will move forward this year, Smith said.

DECD is working with NHMA to increase participation in the program, but it is difficult because most Connecticut manufacturers don’t have a lot of spare cash lying around to invest in an MRA, said Smith. Other state tax programs such as research and development credits and the waiver of sales tax on manufacturing equipment purchases are more widely used because they are less complicated than an MRA.

“My goal is to do everything we can to support the manufacturing community in the state,” Smith said.

On the federal level, Rep. Rosa DeLauro (D-New Haven) and Rep. Adam Kinzinger (R-IL) introduced the MRA legislation in late April. This is the third Congress in a row the legislation has been introduced.

“Nothing happens overnight in this institution,” DeLauro said. “It takes years.”

The federal MRA bill has more hope this session because the Ways & Means Committee is looking for manufacturing initiatives to roll into one larger manufacturing aid package, DeLauro said. This, coupled with President Barack Obama’s initiative to reform the tax code, could give the MRA tax break a chance of becoming federal law.

“We have a solid piece of legislation,” DeLauro said. “My hope is we can do it in a tax reform package.”

DeLauro said the federal MRA idea originally came from her interactions with Scott and the rest of the NHMA membership. She wrote the bill believing it could help manufacturers grow their businesses.

“This is a good route for manufacturers,” DeLauro said. “It enables manufacturers to reinvest more of their dollars in their business.”

When Connecticut first created its MRAs, the law was hailed as a national model for supporting manufacturers. When Smith said she attended a National Governors Association conference after the MRA adoption, she and the state received significant praise and fielded requests on how other states could start such a program.

“It was seen as leading edge for the United States,” Smith said.
Pennsylvania is considering its own MRA model, following the path Connecticut set forth, Scott said. Once more states adopt the concept into their own tax structure, the federal adoption will be easier.

Even though the Connecticut MRA program is underutilized, Scott said the concept will help manufacturers compete in the global economy and add more jobs and economic development in the state, because they are setting aside money for future growth like their employees do with Individual Retirement Accounts.

“An MRA is like an IRA for manufacturers,” Scott said. “I haven’t found any opposition to the idea, except for getting the folks in D.C. to understand that this is a bipartisan bill.”